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2024 (7) TMI 1178 - AT - Income TaxDenial of Exemption u/s 11 - assessment of trust - undisclosed income declared under the PMGKY Scheme - AO calculated total cash withdrawals and bogus corpus donations based on incriminating documents and extrapolating the available data - AO concluded that the unaccounted cash thus generated was not available with the assessee trust on survey action, thus said cash was diverted to the trustees and other for investments in bullions and properties before commencement of PMGKY as well as before survey action - AO further concluded that the assessee violated the basic objects for which it is established and recognized /approved u/s. 12 and 10(23C) - as stated amount of undisclosed income declared under the PMGKY Scheme should not be included in the total income of the assessee. HELD THAT - Simply participation in some amnesty scheme like PMGKY does not absolve the assessee from the wrongdoing. Intent of any amnesty scheme is to comply and rectify previous non-compliance. In the judgement of Union of India v. Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT held that mens rea (intention) is an essential ingredient of fraud and that heavy penalties can be imposed for fraudulent acts. In the present case, we have no hesitation to say that the intent was to defraud the object of the trust. In case of CIT v. Suresh N. Gupta 2008 (1) TMI 396 - SUPREME COURT . discussed the principles of amnesty schemes and held that such schemes aim to promote voluntary compliance and cannot be equated with fraudulent conduct. Thus, in the present case, the stand of assessee that their participation in PMGKY is absolving them from defaults is not correct. CIT(A) failed to provide specific reasons demonstrating how the assessee was meeting the objects of the trust. Given the systematic fraudulent activities uncovered, the accounts of the trust cannot be relied upon. Additionally, the principle of res judicata does not apply in income tax proceedings, and each assessment year must be evaluated based on its facts and circumstances. Therefore the Ld.CIT(A) s contention that AO has granted credit of PMGKY in A.Y. 2014-15 cannot be the basis to decide the merit of denial of exemption u/s 11 of the Act. The trust's consistent involvement in fraudulent activities was evident from the systematic recovery of staff salaries, bogus corpus donations, and other manipulative practices. The admission of undisclosed income under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) itself is an acknowledgment that the trust deviated from its objects and violated the conditions of Section 13. Furthermore, the tax paid under PMGKY represents a gross misuse of the trust s funds, which were supposed to be applied exclusively for charitable purposes. The present case involves direct evidence of the trust's fraudulent activities, including cash recoveries from salaries and bogus corpus donations, which provide a reasonable basis for the AO's extrapolation. Unlike Nepute Reality, where extrapolation was challenged for lack of direct evidence, the evidence here is robust and systematic. AO s estimates are not merely assumptions but are grounded in substantial and corroborative evidence of systematic fraud and misappropriation of funds by the trust, providing a strong basis for the extrapolation of income. We conclude that the evidence presented by the AO, including the systematic recovery of staff salaries, bogus corpus donations, and other fraudulent activities, constitutes violations under Sections 13(1)(c) and 13(1)(d). The trustees' direct involvement in fraudulent activities, admission of the same during the course of survey and disclosing unaccounted cash transaction in PMGKY and gaining direct benefit from these activities disqualifies the trust from exemptions under Sections 11 and 12. CIT(A)'s failure to specifically justify how the trust met its objects, coupled with the unreliable accounts and the consistent fraudulent activities by trustees, further supports this conclusion. The admission of undisclosed income under PMGKY and the misuse of trust funds to pay taxes under the scheme are clear indicators of deviation from charitable objectives. Revenue s appeals are allowed to the extent that the exemptions under Sections 11 and 12 are denied, and the additions based on the AO s findings are confirmed. AO is directed to recompute the income of the assessee in accordance with Section 164 of the Income Tax Act. Since the trust is found to have violated the provisions of Sections 13(1)(c) and 13(1)(d) of the Act, resulting in the denial of exemptions under Sections 11 and 12 of the Act, the income of the assessee trust should be taxed at the maximum marginal rate as specified under Section 164(2) of the Act. This recalculation should exclude any benefits of exemptions previously claimed under Sections 11 and 12, and all additions made on account of unaccounted income and bogus expenses should be included in the taxable income. The AO should take care in avoiding duplication of addition as pointed out by Ld.CIT(A) and give due credit of income disclosed in PMGKY with taxes paid.
Issues Involved:
1. Unaccounted Cash Receipts from Salary 2. Bogus Corpus Donations 3. Bogus Salary Expenses 4. Exemption under Sections 11 and 12 of the Income Tax Act 5. Violation of Section 13 of the Income Tax Act 6. Applicability of PMGKY Scheme Issue-wise Detailed Analysis: 1. Unaccounted Cash Receipts from Salary: The AO found that the trustees of Parul Arogya Seva Mandal Trust and Parul University were involved in the practice of receiving back a portion of the salary paid to staff in cash and cheque. This was corroborated by various incriminating documents, including MS Excel files and blank bearer cheques collected from employees. The AO calculated the total unaccounted cash receipts based on these documents and extrapolated the amounts for the financial years 2015-16 and 2016-17. The Ld.CIT(A) partially upheld the AO's findings but reduced the additions slightly. 2. Bogus Corpus Donations: The AO observed that the trust recorded amounts received back from employees' salaries as corpus donations. This was confirmed by employee statements and documents found during the survey. The AO disallowed a significant portion of these corpus donations, treating them as bogus. The Ld.CIT(A) confirmed the AO's findings regarding bogus corpus donations for both financial years under consideration. 3. Bogus Salary Expenses: The AO found that the trust was paying salaries to non-existing staff members and withdrawing the amounts using ATM cards and PINs. This was supported by documents and statements from the trustees and employees. The AO disallowed these bogus salary expenses, and the Ld.CIT(A) upheld the disallowances with minor adjustments. 4. Exemption under Sections 11 and 12 of the Income Tax Act: The AO denied the exemptions under Sections 11 and 12, treating the income as normal business income due to violations of the trust's objectives. The Ld.CIT(A) concluded that the AO was not justified in denying the exemptions, as there was no apparent violation of Section 13. The Ld.CIT(A) found that the trust had not deviated from its objects and had applied the funds for its intended purposes. 5. Violation of Section 13 of the Income Tax Act: The AO argued that the trust violated Section 13 by engaging in fraudulent activities and diverting funds for purposes other than its charitable objectives. The Ld.CIT(A) disagreed, stating that there was no evidence to suggest that the trust had misused the funds or deviated from its objects. However, the appellate tribunal found substantial evidence indicating violations of Sections 13(1)(c) and 13(1)(d), including the systematic recovery of staff salaries and misrepresentation of corpus donations. 6. Applicability of PMGKY Scheme: The assessee argued that the undisclosed income declared under the PMGKY Scheme should not be included in the total income. The AO did not accept this submission, stating that the declaration under PMGKY did not cover all the undisclosed income for the relevant years. The Ld.CIT(A) partially accepted the assessee's argument but the appellate tribunal held that participation in the PMGKY Scheme does not absolve the assessee from the wrongdoing and that the trust's fraudulent activities disqualify it from exemptions under Sections 11 and 12. Conclusion: The appellate tribunal dismissed the appeals filed by the assessee and allowed the revenue's appeals. The exemptions under Sections 11 and 12 were denied, and the additions based on the AO's findings were confirmed. The AO was directed to recompute the income of the assessee in accordance with Section 164 of the Income Tax Act, taxing the income at the maximum marginal rate and excluding any benefits of exemptions previously claimed under Sections 11 and 12. The AO should also avoid duplication of addition and give due credit for income disclosed in PMGKY with taxes paid.
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